San Diego Economic Development and Government Committee Meeting - March 7, 2019

The Economic Development and Government Committee met on March 7, 2019. Committee members present included Chair Ward, Vice Chair Montgomery, and Councilmember Kercy; Councilmember Ree was absent. The agenda included one action item—a new council policy for the Business Cooperation Program—and four informational reports: the FY18 Economic Development Annual Report, the economic impact of SPAWAR, a cannabis industry update, and a report on cannabis equity policy. Staff from the Economic Development Department, City Attorney, Mayor's Office, Independent Budget Analyst, and Navy officials were in attendance.

Consent Calendar

• Approval of the minutes and records of action from February 7, 2019. Motion by Councilmember Kercy, seconded by Vice Chair Montgomery. Passed unanimously.

Public Comments & Testimony

• No non-agenda public comment was received.
• During the cannabis industry update, Jim Dickinson (Healing Center) expressed support for the regulated industry, emphasizing safety and lab testing. Alex Shearer (Urban Leaf) discussed the persistent black market, citing a Canadian study showing 80% of sales occurring illicitly, and urged stronger enforcement and public education. Sapphire Blackwood called for improved processes, including on-site consumption and simpler CUP expansions. Marcelo Ramirez (UFCW) urged labor standards and merit-based licensing if licenses are expanded. Christina Garcia advocated for medical cannabis access and on-site consumption.
• During the cannabis equity policy item, Diana Ross and Tariq Hyderi (Mid-City CAN) called for cannabis tax revenues to benefit disproportionately impacted communities and for equity measures in the permitting process. Ebon A. Lee and Jody Guada (Neighborhood Enrichment Organization) demanded community consultation and business education. Terry Best (Americans for Safe Access) supported NEO's participation. Christopher Williams urged an emergency ordinance to access state grant funds with an April 1 deadline.

Discussion Item: Business Cooperation Program (New Council Policy)

• The Economic Development Department proposed modernizing the Business Cooperation Program (BCP), originally established in 1993. The program provides a sales/use tax revenue share to large manufacturing/research businesses with typically over $5 million in taxable sales.
• Proposed changes include: increasing the allowable revenue share from 25% to 45%, limiting agreements to five years, adding transparency and accountability, and targeting net-new revenue. Example: $5 million in taxable sales generates $50,000 in local sales tax; currently the city receives only 48% ($23,905) from the county pool, but with direct allocation and a 45% share the city would retain $27,500 and receive $26,000 more over the agreement life.
• A survey of 619 businesses (93 responses, 15% response rate) found only 14 firms likely to participate. Staff also explored requiring direct allocation on public works contracts exceeding $25 million, with no revenue sharing.
• Committee discussion: Vice Chair Montgomery asked about the audit history, the $25 million threshold, and the administrative burden on businesses; Councilmember Kercy asked about streamlining support and evaluation timelines. Staff said they would evaluate participation in 12–18 months.
• Motion by Vice Chair Montgomery, seconded by Councilmember Kercy. Passed unanimously.

Informational Report: FY18 Economic Development Annual Report

• The Economic Development Department presented a video annual report. Key accomplishments included: 2,518 business assists; 2,281 jobs created or preserved; $1.24 million in grants to 46 nonprofits; 17 storefront improvement projects; 4 business walks reaching nearly 700 businesses; $61 million in federal entitlement funds invested in 97 community projects benefiting 64,689 individuals; $13.9 million in HOME funds creating 428 affordable units; nearly $8 million invested in homeless shelters and rapid rehousing; and 5,375 participants in workforce programs.
• The department manages 58 full-time employees and $136.9 million in expenditures.
• Committee members praised the report but requested more investment in District 4 (Vice Chair Montgomery), noted the upcoming business accelerator at the Jacobs Center (65% complete, 64 applications, 20 businesses expected in first cohort), and asked for a list of CDBG projects (staff said a consolidated plan look-back report would be available in 30 days).

Informational Report: Economic Impact of SPAWAR

• Greg Geyson (SPAWAR) and Captain Kevin Dixon (Navy Base Point Loma) presented. The military is San Diego's largest economic driver: $26 billion in direct spending, 1 in 5 jobs, and 22% of the county's gross regional product. SPAWAR employs 5,000 of its 11,000 workers in San Diego, with a $7.4 billion budget; $1.58 billion in contracts goes to San Diego businesses, including over $500 million to small businesses.
• The Navy is planning a public-private redevelopment of the 70-acre Old Town campus (former WWII B-24 bomber factory) to modernize SPAWAR facilities. The plan includes leasing land for mixed-use development, with a requirement of about 1.5 million square feet. An internal report is due in March 2019, and a public timeline is expected in June 2019; the NEPA process will take 2–3 years.
• Committee members asked about employee distribution, facility utilization, compatibility with a transit station, the Pacific pivot, housing, and child care. Navy officials confirmed no incompatibility with transit and expressed interest in partnering on housing and child care.

Informational Report: Cannabis Industry Update

• Phil Rath (United Medical Marijuana Coalition) and Dallin Young (Association of Cannabis Professionals) presented. The city allows 4 retail marijuana outlets per council district (36 total). As of February 22, 2019, 21 CUPs had been granted and 11 were pending; only 14 outlets were operating. For production facilities, 29 permits were granted, 11 more were being processed, and 36 applicants were pending.
• Measure N, the cannabis gross receipts tax, has generated $6.3 million since January 2018. The tax rate is 5% until July 1, 2019, when it rises to 8%; the council can increase it to 15%. No specific budget uses are identified for these funds.
• Presenters and public speakers cited the persistent unlicensed delivery market (60–100 services), the need for enforcement, and several proposed improvements: extending operating hours from 7 a.m.–9 p.m. to 6 a.m.–10 p.m., allowing on-site consumption, simplifying CUP expansions, and reforming the appeals process.

Informational Report: Cannabis Equity Policy

• Malachi Alman (California Urban Partnership) presented national and California data: 8.2 million marijuana arrests (2001–2010), 88% for possession; African Americans arrested at 3.7 times the rate of whites; Latinos comprised 77% of federal marijuana sentences. He described the grassroots development of Sacramento's Cannabis Opportunity Reinvestment and Equity Program, which includes a 50% license set-aside, technical assistance, and an independent commission.
• Committee members emphasized that economic justice and ownership by impacted individuals must be central. Vice Chair Montgomery stated she would not pursue a conversation without economic opportunity. Chair Ward acknowledged the April 1 state grant deadline and expressed interest in convening community stakeholders to study a local equity program.

Key Outcomes

• Approved the consent calendar records of action from February 7, 2019 (unanimous).
• Adopted the new council policy for the Business Cooperation Program (motion by Vice Chair Montgomery, seconded by Councilmember Kercy, passed unanimously).
• Received the FY18 Economic Development Annual Report as information.
• Received the SPAWAR economic impact and redevelopment update as information.
• Received the cannabis industry update as information; no action taken.
• Received the cannabis equity policy report as information; no action taken. The committee expressed interest in exploring a social equity program and state grant funding.

The next meeting was scheduled for April 11, 2019, at 2:00 p.m.